According to a confirmation from TabaPay to Eltrys, the company has decided not to proceed with the acquisition of Synapse, a troubled banking-as-a-service startup. Synapse has identified Evolve Bank and Trust as the problem’s sources. Evolve asserts its lack of involvement and denies any responsibility. Meanwhile, Mercury dismisses Synapse’s allegations as baseless.
Synapse’s counsel announced in bankruptcy court on Thursday that the deal would not be proceeding, according to a post by Fintech Business Weekly’s Jason Mikula on LinkedIn. A spokesperson from TabaPay informed Eltrys that the company has decided to withdraw from the agreement. The spokesperson stated that TabaPay sent a termination notice this morning due to the failure to meet the closing conditions of the purchase agreement.
Despite the circumstances, Synapse CEO and co-founder Sankaet Pathak remains optimistic about persuading TabaPay to continue with the deal. According to his statement to Eltrys, it appears that TabaPay is still interested in acquiring Evolve, but Evolve has not met the necessary closing conditions for TabaPay to proceed.
According to Pathak, Evolve Bank & Trust has failed to fully fund its FBO accounts, which is a closing condition. An FBO account, also known as a “For Benefit Of” account, is a type of bank or investment account that is established to receive funds on behalf of a third party or beneficiary.
According to a spokesperson from Evolve, they were not involved in the Tabapay acquisition and did not have any closing conditions to fulfil. Nevertheless, there was a settlement agreement in place with Synapse that included a funding condition. Evolve met that condition.
However, Pathak insisted that Evolve had previously indicated that it would fulfil its obligation to fund its FBO accounts as stated in the settlement agreement. “Despite this, Evolve repeatedly requested more time to address the problem with Mercury and gain their approval,” Pathak informed Eltrys. And last night, Evolve falsely informed Synapse and TabaPay that they had fully funded the accounts, despite not actually doing so. Considering the unresolved matter, TabaPay is unable to finalise the transaction.
Bryan Keltner and Pathak established Synapse, a San Francisco-based platform that facilitated the development of financial services for banks and fintech companies, in 2014. It served as a middleman between banking partner Evolve Bank & Trust and business banking startup Mercury, providing those types of services.
Last year, Synapse faced challenges when it served as a middleman between banking partner Evolve Bank & Trust and business banking startup Mercury. Reports emerged of tensions between Evolve and Synapse during the transition period, as Evolve was preparing to end their partnership and establish a new relationship with Mercury. The FDIC is currently investigating Choice Bank, another Mercury partner, for potential compliance issues related to the opening of Mercury accounts overseas.
In a Medium post, Pathak claims that Mercury withdrew $49.6 million more from the Synapse-affiliated accounts than Synapse deemed appropriate, and Synapse has yet to resolve the discrepancy.
In October, Mercury announced that they had successfully completed and resolved the transition away from Synapse.
“By openly sourcing this information, we aim to generate a strong public response, particularly from our customers, in order to prompt Evolve and/or Mercury to address this issue promptly rather than simply hoping it will disappear,” Pathak expressed. This resolution is crucial for Synapse and our ability to successfully complete the TabaPay transaction. It seems that Taba would proceed with the acquisition if Evolve fulfilled their requirement for funding their accounts.
A Mercury spokesperson told Eltrys that the company had thoroughly investigated Synapse’s claims. Mercury made these claims in March 2024, six months after Synapse’s departure. Mercury expressed confidence in the validity of the claims and ensured proper accounting for all customer funds.
The spokesperson stated, “Following Mercury’s lawsuit against Synapse in December 2023 to recover withheld revenue, Synapse retaliated by fabricating allegations and counterclaims against Mercury.” We have thoroughly investigated all of these claims, which have been of different types and quantities. However, we have found that all of them are baseless. Mercury categorically refutes the claims that there were any instances of overdrawn FBO accounts belonging to Mercury customers.
On April 22, Eltrys revealed that Synapse had filed for Chapter 11 bankruptcy. The report also mentioned that TabaPay would be acquiring Synapse’s assets.
The deal was awaiting bankruptcy court approval.
The purchase price of $9.7 million was much lower compared to the over $50 million in venture capital that Synapse had accumulated from investors like Andreessen Horowitz, Trinity Ventures, and Core Innovation Capital.
Established in 2017, TabaPay is a fast money transfer platform headquartered in Mountain View. SoftBank provided support to the company without disclosing the details. The amount of venture capital it has raised is unclear.
In October of last year, Synapse made the difficult decision to let go of 86 employees, which accounted for approximately 40% of the company’s workforce. This occurred following the startup’s decision to lay off 18% of its employees in June of last year. During that period, Synapse acknowledged that the prevailing macroeconomic conditions were affecting its clients and platforms, thereby impacting its expected growth.
